Cash Purchase Followed by Cash Out Refi - Timing

8 Replies

Hi BP Community - I'm looking to invest in a new single family construction and interested in a cash out refi from the start - if it's possible. The local market is very hot and agents have highly recommended making cash offers to increase the likelihood of seller acceptance. I think I can gather the full amount in cash for this transaction (borrowing some from family), however, I don't want to keep 100% locked up and would like to do a cash out refi as soon as possible after closing, leaving a 75-80% LTV.

I spoke briefly with a friend who’s new to the mortgage business and they thought you’d need to wait 6 months after closing before being able to start this process, but they weren’t certain. Hoping someone in this awesome BP community might have insights into whether this can be done earlier than 6 months in, even if it requires taking a different strategy. Open to any and all ideas. Thank you all! 

Hey @Kristin Haug , 6 month seasoning was/is typical from local banks, which used to have the best rates so it was worth the pain/wait. The 'new' debt service coverage ratio (DSCR) driven products are more attractive, though, IMHO. 30-yr fixed rate, 30-yr term, rates in the 4s (right there / better than banks) and no debt to income ratio BS. Most max at 75% LTV. 80% LTV is possible if the rent from the property supports the loan payment. Hope that's helpful.

@Kristin Haug

Is your only issue seasoning time?  You aren't trying to cash out "profit?"

You'd be what this layman believes is a perfect candidate for delayed financing loan.  Its part of a standard, conforming loan (i.e. Fannie Mae, Freddie Mac compatible).  Nothing special so no extraordinary lenths are required.  My lender will do it.  Basically, the Fanne/Freddie rules allows for somebody to obtain their loan within 6mo after closed based on the PURCHASE price of property.  This doesn't work for most/all investors here doing the brrr or similar.  But, if you just want to make a cash offer to have a stronger offer, have the cash to close, close, then get your loan, a delayed financing approach is the way to go.

Feel free to direct message me if you want to chat and/or want my lender contact info.  Good luck.

@David M.

Thanks, @David M. - super helpful!

That’s spot on- I’m not anticipating profit right away, timing/seasoning is my main concern. I can put together the cash to make the offer (and hopefully make it more appealing for the seller to accept), then close, then I’m looking to quickly finance it to pull back out the majority of the cash (75-80%) so I can deploy it elsewhere. I’ll also need to repay my family/friends loaning me some of the cash. The delayed financing loan sounds like a great option here.

I’m wondering if I could initiate that delayed financing loan in parallel while making the cash offer on the property so it’s ready shortly after closing on the transaction.

Thank you very much for the insight here!

@Kristin Haug

I haven't done one...  Like i said, my lender has.  But, I'm pretty sure you'd get all your paperwork together before the first closing. You'd want to be pre-approved, and probably even further and have your mortgage committment before you close on the house.  so, basically you could cash out the next day...  I'm guessing the "within 6 month" requirement is part of the 6 payment requirement and figures into the back end financing arrangments.

Good luck.

@Kristin Haug you have some good comments above and I wanted to add some additional items to think about as well. You can certainly do the "delayed financing" exception at most lenders (not every lender will allow it though) and on an investment property the threshold is 75% of the Value or your purchase price....whichever is lower...on a single family home. It is likely that 75% would be the lower number here. Also, as mentioned above this is a Fannie/Freddie type of transaction. So it would need to be at or below their loan threshold. I see you are located in NYC (I move to Texas from there) so if you are buying in or around the city....you might be purchasing OVER a loan amount that they provide. If you are using a DSCR loan as mentioned above then none of these little "rules" apply since delayed financing is just a Fannie/Freddie rule....but they might have OTHER rules that are critical to your transaction. Certainly get prequalified first.....but also do work with a lender that is very knowledgeable about your options here. Oh, and you likely won't be able to start until the very end of your new build. Since title work needs to reflect you own it, the appraiser needs to see that as well, insurance, etc....so expect about a 45 day closing using this type of method...and that's 45 days AFTER you purchase. *WHEW* I know that's a lot but feel free to ask anything additional. Thanks!

@Kristin Haug

I was told by a lender that I could borrow cash from family, delayed refi, and pay people back. So I went ahead and did it, and then realized that there was no program that I could find where gift money was permitted for delayed refi. I could only get back the 100k that I put in of my own money, which was 25% of purchase cost.

So now I’m stuck waiting 6 months for a cash out refi. The terms are not as favorable as delayed refi. But you’re friend is correct, at least with the banks I’ve spoken to: 6 months seasoning after purchase to cash out.

Originally posted by @Kristin Haug :

Hi BP Community - I'm looking to invest in a new single family construction and interested in a cash out refi from the start - if it's possible. The local market is very hot and agents have highly recommended making cash offers to increase the likelihood of seller acceptance. I think I can gather the full amount in cash for this transaction (borrowing some from family), however, I don't want to keep 100% locked up and would like to do a cash out refi as soon as possible after closing, leaving a 75-80% LTV.

I spoke briefly with a friend who’s new to the mortgage business and they thought you’d need to wait 6 months after closing before being able to start this process, but they weren’t certain. Hoping someone in this awesome BP community might have insights into whether this can be done earlier than 6 months in, even if it requires taking a different strategy. Open to any and all ideas. Thank you all! 

Hey Kristin.

Welcome to BP.  Your friend is right; 6 months is the Fannie standard.

Delayed financing should work, but rates for Fannie loans have crept up recently making the DSCR loans very competitive.

Stephanie